Thematic paper[i]

A. Introduction

The EU institutions and bodies use ‘calls for tenders’ to decide on the allocation of funding for projects under EU programmes, as well as for purchasing services, works and goods for internal purposes. EU institutions and bodies also monitor tender procedures carried out by external actors responsible for EU programmes, i.e. indirectly managed by the EU institutions or bodies[1]. This is particularly so in the field of EU external actions.

As outlined in the EU's first Anti-Corruption Report[2], public procurement is an area exposed to significant risk of corruption, due to the size of the financial flows involved. Integrity in managing public tenders is therefore essential in maintaining citizens' trust in the EU institutions' activities.

The European Ombudsman (EO) is the only review body outside the legal system for economic opera­tors who consider they have been treated unfairly by the EU institutions. Some of the issues regularly raised in complaints to the Ombudsman include alleged unequal treatment of tenderers, the appearance of conflicts of interest involving those charged with evaluating tenders and transparency shortcomings.

This paper discusses the role of the EO in complaints related to tenders, with a focus on the award stage. It outlines the legal framework, the ‘ombudsprudence’[3] and the contribution the EO has made in this area.

B. Legal framework and ‘ombudsprudence’

The legal framework

In public procurement matters, the EU institutions must comply with the relevant provisions of the Treaties, the general principles of EU law and the Charter of Fundamental Rights. For the EU institutions financed from the general budget, procurement rules are laid down in the EU’s ‘Financial Regulation’ and a further delegated regulation[4]. The European Central Bank and the European Investment Bank are outside the scope of the Financial Regulation and apply their own procurement rules[5].

The general principles of public procurement are equal treatment of tenderers, transparency, proportionality and non-discrimination. EU institutions and bodies are also required to ensure broad competition and to apply the principle of sound financial management, which implies efficient and effective public spending.

The ombudsprudence

The EO issued around 70 decisions on complaints related to public procurement between 2008 and 2016. The majority of these decisions (38 cases) related to procurement activities outside the EU, frequently involving EU Delegations. Many complaints were based on a claim that the institution concerned had failed to respect EU procurement principles, as outlined in the Financial Regulation; some were about the right of access to documents; and others concerned potential breaches of the principles of good administration, such as the duty to explain decisions and the ‘right to be heard’.

The EO considers that EU institutions and bodies not only need to apply proper standards when directly managing procurement procedures, but that they also have a duty to ensure the proper management of EU funds spent in non-EU countries, particularly in countries where the rule of law may not be as advanced[6].

If complaints include evidence of potentially false declarations and/or the suspicion of fraud, the EO has a duty to notify the European Anti-Fraud Office (OLAF)[7].

1. Equal treatment and non-discrimination of tenderers

The EO has dealt with various complaints about the definition and interpretation of the criteria laid down in calls for tenders. Public authorities may use different criteria when evaluating tenders, typically for setting out cost and technical specifications, but also regarding social and environmental standards. They also have a wide margin of discretion in determining the weighting they give to each criteria. The principle of equal treatment means that tenderers must have a level playing field both for formulating their offers and in how their offers are assessed by the contracting authority[8].

The principle of equal treatment applies to the information given to potential bidders. In case 277/2008/IP, the EO outlined that “it is fundamentally incompatible with [the principles of equal treatment and non-discrimination] to give targeted potential bidders specific and privileged information on a public call for tenders prior to publication of that call.”[9] The principle of equal treatment does not prevent an evaluation committee from seeking clarifications about a bid if it becomes evident that this is necessary [10].

2. Preventing conflicts of interests and appearances of conflicts of interests

In case 491/2007/PB, the EO emphasised that the duty of equal treatment “is intertwined with the need to ensure that the tender procedure is carried out in an objective and impartial manner, free from, amongst others, any conflicts of interest.”

EO cases about alleged conflicts of interests mostly concern experts and members of selection committees for public tenders or recruitment procedures. As a general rule, the EO has made clear that the EU institutions and bodies have a duty to prevent conflicts of interests and to act to address any suspicion or appearance of such conflicts. EU institutions or bodies should act immediately when there are allegations of possible conflicts of interests. EU institutions and bodies also have a duty to keep a record of their analysis of alleged conflicts of interests, to be in a position to defend their decisions (51/2011/AN ).

Specific examples based on cases in which the EO found there was or could be an apparent conflict of interests include:

• an EU delegation (or another EU institution or body) allowing a company to participate in a public tender for which one of its employees had assisted in drafting the Terms of Reference, without proof that the expert’s involvement in the previous stages of the project did not constitute unfair competition (1005/2011/MMN)[11];
• an evaluation committee, which assesses bids in a call for tenders, using a technical advisor who had worked for some or all of the shortlisted tenderers (642/2008/MMN)[12].

3. Ensuring competition

Ensuring the widest possible competition in tender procedures not only guarantees the principle of free movement of goods and services, it also allows EU institutions to obtain the best value for money. In case 491/2007/PB, the EO observed that issuing a call with particularly narrow conditions leaves the contracting authority open to accusations that it was deliberately limiting the number of bidders.[13]

4. Transparency

The principle of transparency aims to prevent any risk of favouritism or arbitrariness on the part of the contracting authority. It implies that the conditions and rules of the award procedure must be explained in a clear, precise and unequivocal manner in the contract notice or tendering specifications.

The EO has launched inquiries concerning transparency of the selection criteria and consistency of the tender documents, noting that “it is good administrative practice in tender procedures for the administration clearly and unambiguously to set out the conditions that applicants must fulfil” (920/2010/VIK).

The EO has also encouraged EU institutions and bodies to disclose the names of the evaluators of tenders they organise. She also suggested that, prior to appointing persons to a procurement evaluation committee, the contracting authority should obtain their consent for the disclosure of their names (1874/2013/MG and 393/2015/MDC).

However, the EO accepts that the principle of transparency does not extend to the publication of the names of, and information about, the losing tenderers as this could undermine their commercial interests.

5. Other principles derived from the right to good administration

Duty to justify decisions: in case 2573/2007/VIK, the EO considered that “notwithstanding the wide discretion given to the relevant administration, an unsuccessful tenderer has a right to receive information as to why its bid was rejected. This right is an expression of the obligation of the administration to give reasons for its decisions in any administrative procedure which could adversely affect an individual.”

Right to be heard: in case OI/3/2008/FOR concerning the Commission’s Early Warning System (EWS)[14], the EO suggested that ”the Commission should ensure that it implements the present EWS decision in a manner which respects, in practice, the fundamental rights to be heard and to seek a review of a decision placing a person on the EWS.”

C. The Ombudsman’s role in procurement complaints

Scope of Ombudsman’s review

When examining the steps of an award procedure, the EO checks that the institution has complied with the rules and principles governing public procurement, as well as with the principles of good administration in general.

The EO recognises that selection committees enjoy a wide margin of discretion (150/2015/DK, 3345/2008/TS, 1983/2011/AN, 1091/2012/AN). The EO also recognises that the institution or body formulating a call for tenders has discretion in determining the objective of the call and the conditions it deems necessary for delivering that objective. The EO can look at whether the conditions applied are “consistent with the basic principles laid down in the Financial Regulation, or whether any breaches of these principles have clearly occurred” (491/2007/PB).

Where an EU institution is in charge of monitoring a tender procedure, the EO usually investigates whether the institution has applied a sufficient degree of care and diligence to ensure that the applicable rules were complied with (2400/2006/JF, 3112/2007/MF).

The EO can assess the legality of the institution’s interpretation of the tender documents (2400/2012/ANA). In case 178/2014/AN, the EO concluded that the institution’s “decision to maintain its non-objection to the exclusion of the complainant's tender was based on a legally incorrect reading of the tender documents” and amounted to maladministration.

Possible deterrent effects

It is possible that many problems are not reported to the EO (or to the Courts), as the persons or organisations involved fear it could negatively impact on their chances to secure future contracts with the EU. The European Court of Auditors compared the number of General Court cases relating to public procurement with the number of award decisions published by the EU institutions and bodies in the Tenders Electronic Daily (TED) [15]. It found that only 1% of procurement procedures carried out by EU institutions and bodies were subject to legal proceedings in the EU’s General Court. This is lower than at national level, where between 2-12% of procurement procedures led to ‘review procedures’[16].

Possible means of redress for complainants

In its special report on public procurement published in 2016[17], the European Court of Auditors found that of 60 decisions taken by the EO between 2008 and 2015, 30 cases were closed with a finding of no maladministration, 8 cases were closed with a solution and 20 cases resulted in a finding of maladministration[18]. In most of the cases where the solutions proposed were accepted by the institutions, the solutions either resulted in the institution concerned making information available to the complainant or giving an explanation of the reasons for its decision on a tender proposal.

It can be difficult for the EO to secure effective redress for complainants in procurement complaints. Often, such cases are closed with the EO making recommendations and suggestions for improvement to the institutions. Public procurement rules usually provide for a 10-15 day standstill period between the decision to award a contract and the conclusion of the contract. This is done in order to allow time to address any problems encountered by unsuccessful tenderers. For tenders that result in a complaint to the EO, the contracting authority does not suspend the award of the contract. As the complainant must first raise its concern with the EU institution before complaining to the EO, by the time the EO takes a decision, the contract will have already been awarded to another bidder and, quite possibly, the entire tender procedure concluded.

Where a tender procedure has not been conducted properly and/or fairly, the most significant negative impact is that tender participants are deprived of funding that they would have received had they been awarded the con­tract. As preparing a proposal for a tender can involve costs, this is another area of potentially negative financial impact for applicants in tenders that are not conducted properly and/or fairly[19]. In accordance with the principles of good administration, an institution should make good any loss incurred by any person as a result of any improper or unfair actions by that institution. However, in procurement cases, the amount of money involved means that the institutions are generally reluctant to provide redress by voluntarily offering compensation (1983/2011/AN, 1005/2011/MMN, 2400/2012/ANA).

The EO believes it should not be so difficult to secure compensation for costs incurred in preparing a tender, where the tender procedure was conducted improperly and unfairly. In one case, the institution concerned reimbursed the costs incurred by a complainant who had participated in a procurement procedure that was conducted improperly and unfairly (case 3000/2009/JF).

 

[1] In the case of programmes under direct management, the Commission is the ‘contracting authority’. In the case of programmes under indirect management, the Commission entrusts budget implementation to partner countries/organisations and supervises them.

[2] Report from the Commission to the Council and the European Parliament - EU Anti-Corruption Report, Brussels, 3.2.2014, COM(2014) 38 final: https://ec.europa.eu/home-affairs/sites/homeaffairs/files/e-library/documents/policies/organized-crime-and-human-trafficking/corruption/docs/acr_2014_en.pdf

[3] The term ’ombudsprudence’ refers to the usual approach or thinking of the European Ombudsman on a particular issue, as set out in previous reports and decisions of the European Ombudsman. Ombudsprudence constitutes a set of ethical norms which, in the view of the European Ombudsman, should be followed by the EU’s public administration.

[4] Title V of Regulation 966/2012 on the financial rules applicable to the general budget of the Union (‘the Financial Regulation’) and Commission delegated Regulation 1268/2012 of 29 October 2012 on the rules of application of Regulation 966/2012.

[5] Decision of the ECB of 3 July 2007 laying down the Rules on Procurement (ECB/2007/5) and EIB’s ‘Guide for the procurement of services, supplies and works by the EIB for its own account’ (2016).

[6] In case 178/2014/AN, the EO concluded that “the EIB's maladministration in this case risks putting into question not only the EIB's own reputation but also the Union's commitment to strengthening the rule of law in Bosnia and Herzegovina”.

[7] Article 4.2 of the EO Statute.

[8] See case 1137/2005/ID. “More specifically, that means that (a) the award criteria will not confer on the contracting authority an unrestricted freedom of choice as regards the award of the contract and (b) when tenders are being assessed, the award criteria must be applied objectively and uniformly to all tenderers.”

[9] See also case 546/2007/JMA.

[10] In case 3222/2005/IP, the EO considered that while the evaluation committee “is not obliged to ask for clarification regarding each and every point which may be unclear in a bid, it would certainly be an abuse of its discretion, and therefore an instance of maladministration, if the evaluation committee failed to seek clarifications as regards an issue which was evidently unclear and which could prove decisive for the acceptance or rejection of a bid.”

[11] In this case, the company concerned (whose employee assisted in drafting the Terms of Reference) was awarded the tender.

[12] “The Ombudsman took the view that a member of an Evaluation Committee, or an observer of a tender evaluation procedure, who has worked, or who is currently working for any of the tenderers, may be considered, at the very least, as having an apparent conflict of interest.” Concerning highly specialised fields, the EO considered that “if the Commission were obliged to choose an expert who had connections with some of the tenderers, the Commission would need to make a special effort to ensure that the expert's work was not unduly affected by a conflict of interests. For example, it would need to ensure that the identity of the tenderers remained hidden from the expert when he/she examined the tenders.”

[13] “If the evaluation committee concerned subsequently interprets that condition widely [...] it not only discriminates against those who, for the above reason, did not apply, but also distorts the aim of ensuring the widest possible competition.”

[14] The Commission's Early Warning System (EWS) is a computerised information system that seeks to identify "threats" to the EU's financial interests and reputation. In 2016 it was replaced by the ‘Early detection and exclusion system’.

[15] European Court of Auditors, Special Report, “The EU institutions can do more to facilitate access to their public procurement” (2016) p. 44.

[16] Complaints made before a national review body, administrative or judicial. Source: Commission staff working document SWD(2014) 262 final of 1 August 2014, p. 26.

[17] European Court of Auditors, Special Report, “The EU institutions can do more to facilitate access to their public procurement” (2016) p. 46. For 5 cases out of 20 findings of maladministration, it was no longer possible to find a solution. In 5 other cases, the institution rejected the solution proposed.

[18] In addition, one case was closed because it was subject to proceedings by the General Court and another case was withdrawn by the complainant.

[19] For example when there has been maladministration but the complainant cannot demonstrate that it would definitely have been selected had the institution concerned handled the tender procedure properly.

 

[i] The drafting of this paper was led by the Strategic Inquiries Unit and finalised on 5 September 2017.